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Yelena Yentin, et al. v. Michaels

September 14, 2011


The opinion of the court was delivered by: Dalzell, J.


Plaintiffs Yelena ("Yelena") and Alexander Yentin ("Alexander") sue defendants Michaels, Louis & Associates, Inc. ("MLAI") and Louis M. Ciccone ("Ciccone"), alleging claims under the Fair Debt Collection Practices Act ("FDCPA" or "the Act"), 15 U.S.C. §§ 1692, et seq., as well as state-law claims under the Pennsylvania Fair Credit Extension Uniformity Act ("FCEUA"), 73 Pa. Cons. Stat. §§ 2270.1, et seq., and the Pennsylvania Unfair Trade Practices and Consumer Protection Law ("UTPCPL"). 73 Pa. Cons. Stat. §§ 201.1, et seq.. The Yentins' suit arises out of defendants' efforts -- including institution of a suit in the Magisterial District Court of Bucks County, Pennsylvania -- to collect on a debt that the Yentins allegedly did not owe.

Defendants filed a motion to dismiss plaintiffs' complaint pursuant to Fed. R. Civ. P. 12(b)(2) and 12(b)(6), to which plaintiffs filed a response in opposition, leading defendants to file a reply. Defendants advance seven reasons that we should dismiss plaintiffs' claims against them: (1) the bulk of plaintiffs' factual allegations do not concern the defendants, Defs.' Mem. in Supp. of Mot. to Dismiss ("Defs.'

Mem.") at 8; (2) plaintiffs' allegations as to the defendants are legal and conclusory in nature, Defs.' Mem. at 9, 13-14; (3) contrary to plaintiffs' contention, the FDCPA imposes no duty to investigate the validity of debts, id. at 9-11; (4) even if the FDCPA did impose a duty to investigate, defendants carried out a sufficient investigation, id. at 11-12; (5) plaintiffs cannot succeed on their claims against Ciccone because they have not attempted to pierce the corporate veil, id. at 14-15; (6) Yelena has no standing to bring claims against the defendants, id. at 15; and (7) plaintiffs' state-law claims are derivative of their FDCPA claims, and hence fail due to the inadequacy of those federal claims. Id. at 15. Defendants also seek attorney's fees and costs from plaintiffs pursuant to 15 U.S.C. § 1692k(a)(3) for maintaining this action in bad faith. Id.

The allegations in plaintiffs' complaint are sparse, especially as regards defendants, and plaintiffs attempt both to invent facts that might support causes of action and to fabricate rights under the applicable statutes that do not exist. Nonetheless, for the reasons discussed below, we will only grant defendants' motion to dismiss plaintiffs' FDCPA claims in part, and will give plaintiffs leave to file an amended complaint that cures the deficiencies we identify herein. Because a plaintiff that states a claim for violation of the FDCPA has also stated a claim under the FCEUA and UTPCPL, we deny defendants' motion to dismiss with respect to plaintiffs' state-law claims.

I. Factual Background

In evaluating a motion to dismiss under Rule 12(b)(6),*fn1 we "'accept all factual allegations in the complaint as true and give the pleader the benefit of all reasonable inferences that can be fairly drawn therefrom.'" Ordonez v. Yost, 289 Fed. Appx. 553, 554 (3d Cir. 2008) (quoting Kost v. Kozakiewicz, 1 F.3d 176, 183 (3d Cir. 1993)). We may "'consider only allegations in the complaint, exhibits attached to the complaint, matters of public record, and documents that form the basis of a claim,'" Brown v. Daniels, 128 Fed. Appx. 910, 913 (3d Cir. 2005) (quoting Lum v. Bank of America, 361 F.3d 217, 222 n.3 (3d Cir. 2004)) (quotation marks omitted), where a document forms the basis of a claim if it is "'integral to or explicitly relied upon in the complaint.'" Id. (quoting In re Burlington Coat Factory Sec. Litig., 114 F.3d 1410, 1426 (3d Cir. 1997)) (emphasis omitted).

The parties have included with their submissions to the Court a number of exhibits. Plaintiffs attach to their complaint certified mail receipts that allegedly document communications plaintiffs mailed to credit reporting agencies and creditors, as well as the complaint that was filed against plaintiffs in Bucks County. See Pls.' Compl. ¶¶ 3-4; Exs. A & B to Pls.' Compl. For their own part, defendants attach to their motion correspondence between MLAI and Alexander that purportedly establishes the adequacy of MLAI's debt investigations and plaintiffs' lack of good faith in maintaining this action. See Defs.' Mem. at 4-5; Exs. A-C to Defs.' Mem. Plaintiffs' response includes a letter pertaining to the resolution of the action in Bucks County, Exs. B to Pls.' Resp. in Opp. to Defs.' Mot. ("Pls.' Resp."), and defendants' reply includes public documents regarding MLAI and "Michael, Louis & Associate's" ("MLA's") status as entities. See Ex. E to Pls.' Resp.; Ex. A to Defs.' Reply in Support of Mot. to Dismiss ("Defs.' Reply"). This proliferation of exhibits risks "'converting the motion to dismiss into one for summary judgment,'" In re Burlington Coat Factory, 114 F.3d 1410 at 1426 (brackets omitted) (quoting Shaw v. Digital Equip. Corp., 82 F.3d 1194, 1220 (1st Cir. 1996)), when we are only supposed to "'consider an undisputedly authentic document that a defendant attaches as an exhibit to a motion to dismiss if the plaintiff's claims are based on the document.'" Id. (quoting In re Trump Casino Sec. Litig., 7 F.3d 357, 368 n.9 (3d Cir. 1993)). Of the documents the parties offer, only the documents relating to the action in Bucks County meet these requirements, while the documents defendants proffer regarding MLA and MLAI's entity status qualify as public records. We will consider only these attachments in ruling on defendants' motion.

Plaintiffs allege that they are adult citizens of Pennsylvania, Pls.' Compl. ¶ 2, and that MLAI is "a corporate entity that conducts business in the Commonwealth of Pennsylvania." Id. ¶ 4. As for Ciccone, plaintiffs claim that he is an adult citizen of Pennsylvania "who is the officer, majority shareholder, and/or majority interest holder" of MLAI.*fn2

Id. ¶ 5.

According to plaintiffs, they learned in May of 2004 that unknown individuals had used their personal information to open credit card accounts and lines of credit with financial institutions and then "cashed out" these accounts and lines of credit to the maximum available limit. Id. ¶¶ 11-12. Plaintiffs aver that they immediately contacted the Northampton Township Police Department ("NTPD"), which initiated an investigation regarding the alleged identity theft and fraudulent use of information. Id. ¶ 13. Plaintiffs also allege that they mailed notifications and disputes to credit reporting agencies and creditors seeking payment for the fraudulently opened accounts and lines of credit, advising them that the identity theft had occurred, id. ¶ 14. In particular, plaintiffs allege that they informed the original creditors of the accounts on which defendants later sought payment, as well as defendants themselves, of the identity theft by telephone. Id. ¶ 15. Nonetheless, plaintiffs claim that they have been subjected to at least three lawsuits by debt collectors that sought payment for fraudulently incurred debts -- plaintiffs state that they prevailed in each of these lawsuits. Id. ¶¶ 16-17.

In the summer of 2007, "[t]o the best of Plaintiffs' knowledge," someone used their personal information to open at least one unauthorized account or line of credit with CashCall, Inc. ("CashCall"). This person then began withdrawing funds from plaintiffs' bank account without their knowledge or authorization. Id. ¶¶ 18-19. Plaintiffs state that they informed CashCall that they had "nothing to do" with any credit card or line of credit it had issued, and asked CashCall to cease collection activities against them. Id. ¶¶ 20-21. Furthermore, plaintiffs aver that Alexander spoke on several occasions with a female representative of CashCall. In the course of these conversations, the representative called Alexander a thief and a liar, told him that his family should be in jail, and warned that plaintiffs would lose their home if they did not immediately pay CashCall. Id. ¶¶ 22-23. According to plaintiffs, they then contacted the NTPD to report that CashCall was withdrawing funds from their accounts without authorization. Following this report, plaintiffs received no further communications from CashCall. Id. ¶¶ 24-25.

On November 29, 2010, MLA/MLAI*fn3 filed a civil complaint against Alexander in the Magisterial District Court of Bucks County. In plaintiffs' words, MLAI sought "to collect upon an alleged debt owed to CashCall, Inc." Id. ¶ 26; see also Ex. B to Pls.' Compl. (attaching hearing notice and complaint in Bucks County action). Ciccone verified this complaint in his capacity as "Owner." Pls.' Compl. ¶ 27; Ex. B to Pls.' Compl. According to plaintiffs, defendants dismissed their claims in this matter on December 17, 2010. Pls.' Compl. ¶ 29.

II. Analysis

As the Supreme Court has explained, "only a complaint that states a plausible claim for relief survives a motion to dismiss" pursuant to Rule 12(b)(6), giving rise to a "context-specific" inquiry that "requires the reviewing court to draw on its judicial experience and common sense." Ashcroft v. Iqbal, 129 S. Ct. 1937, 1950 (2009). To survive this inquiry, "[f]actual allegations must be enough to raise a right to relief above the speculative level," Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007). While this standard is not as demanding as a "probability requirement," a plaintiff must allege facts sufficient to show that there is "more than a sheer possibility that a defendant has acted unlawfully." Iqbal, 129 S. Ct. at 1949 (internal quotation marks omitted). In essence, a plaintiff must provide "enough facts to raise a reasonable expectation that discovery will reveal evidence of the necessary element." Phillips v. County of Allegheny, 515 F.3d 224, 234 (3d Cir. 2008) (quotation marks omitted). Moreover, a pleading may not simply offer "labels and conclusions," Twombly, 550 U.S. at 555, and "[t]hreadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice." Iqbal, 129 S. Ct. at 1949. Under Rule 12(b)(6), "the defendant bears the burden of showing that no claim has been presented." Hedges v. United States, 404 F.3d 744, 750 (3d Cir. 2005).

A. The Relevance Of Plaintiffs' Allegations

Defendants note that "[i]t is not until paragraph 26 of the Complaint that Plaintiff even mentions the Defendants."

Defs.' Mem. at 8. This is not quite accurate, though it is true that nearly all of plaintiffs' allegations as to events occurring before November 29, 2010 -- the day MLA/MLAI filed a civil complaint against Alexander in Bucks County -- concern actors and entities other than MLA. Pls.' Compl. ¶¶ 11-25. The only factual allegations in plaintiffs' complaint that appear relevant to the question of defendants' liability under the FDCPA, FCEUA, and UTPCPL are the following: (1) at an undetermined time, plaintiffs directly advised defendants by phone that an identity theft had occurred involving the unauthorized use of plaintiffs' information, id. ¶ 15; (2) in the summer of 2007, someone opened an account or line of credit with CashCall using plaintiffs' personal information, without authorization, id. ¶ 18; and (3) MLA/MLAI filed a civil complaint against Alexander on November 29, 2010 to collect debts owed to CashCall, with Ciccone verifying the complaint as MLA's owner. Id. ¶¶ 26-27. While plaintiffs' other allegations, taken as true, suggest that since May of 2004 plaintiffs have experienced an unpleasant series of events resulting from the theft of their identities, we will ignore these allegations as irrelevant in ruling on defendants' motion.

B. Ciccone's Personal Liability

We will begin by considering one of the final arguments defendants advance in their motion to dismiss, since it concerns a fundamental ambiguity in the facts plaintiffs have pleaded. Defendants urge the dismissal of plaintiffs' claims against Ciccone, arguing that "at no time has Mr. Ciccone acted in any capacity other than as an owner and officer of MLA regarding anything remotely connected with Plaintiff, and any claim should have been properly raised against the entity filing, not the individual signing for MLA on its behalf." Defs.' Mem. at 14. Plaintiffs respond that "the MDC Complaint appears to have been filed on behalf of [a] fictitious name -- the caption contains no corporate indicia or abbreviations," and that it is therefore unknown "whether the MDC Complaint was filed by Mr. Ciccone personally under his fictitious name or by his homonymous corporation." Pls.' Resp. at 16. Moreover, plaintiffs claim that "Mr. Ciccone actively directed the collection activities aimed at the Yentins." Id. at 16-17. Defendants reply that "[t]he fact of MLA's current status as an incorporated entity appears on the same search screen as that of the previous fictitious name Plaintiffs' [sic] attached to their Response." Defs.' Reply at 5-6; see also Ex. B to Defs.' Reply.

1. Ambiguity As To The Entity Filing Suit

We have already noted that the complaint defendants filed in Bucks County creates some ambiguity as to the identity of the entity filing the complaint. While the hearing notice identifies "Michaels Louis & Associates Inc." as the plaintiff, the complaint states that the plaintiff is "Michaels, Louis & Associates." Ex. B to Pls.' Compl. The public business entity records that defendants attach to their reply do not resolve this ambiguity -- they merely demonstrate that "Michaels Louis & Associates," a "[f]ictitious [n]ame[]," and "Michaels, Louis & Associates, Inc.," a "[b]usiness [c]orporation," are both currently active entities. Ex. B to Defs.' Reply. The civil complaint in the Bucks County action identifies "Louis M. Ciccone" as the "Owner" of the plaintiff in that action. Ex. B to Pls.' Compl. If it was MLA, not MLAI, that filed the civil complaint against plaintiffs, then Ciccone would not be shielded by the corporate veil from liability for MLA's actions. However, if it was MLA that filed the action, then plaintiffs have not stated a claim against MLAI under the FDCPA since it was MLA that allegedly took the actions violative of the Act.

We are constrained, in ruling on a motion to dismiss, to draw "all reasonable inferences" in favor of the plaintiff. Ordonez v. Yost, 289 Fed. Appx. at 554. Plaintiffs' complaint, and the exhibits upon which it relies, present genuine ambiguity as to the identity of the entity that filed suit against Alexander in the Magisterial District Court of Bucks County. Drawing the inference that this entity was in fact MLA disadvantages plaintiffs because it would mean that plaintiffs have not stated a claim against MLAI -- the named defendant --under the FDCPA. As we explain below, the complementary inference -- that the suing entity was MLAI -- does not similarly disfavor plaintiffs, since they may still maintain a claim against named defendant Ciccone under such factual circumstances. We will consequently draw the latter inference.

2. Ciccone's Personal Liability Under The FDCPA

If we assume that it was MLAI that filed the complaint against the plaintiffs, they may still state a claim against Ciccone in his individual capacity. The Seventh Circuit concluded in Pettit v. Retrieval Masters Creditor Bureau, Inc., 211 F.3d 1057, 1059 (7th Cir. 2000) (citations omitted), that [U]nder our holding in White v. Goodman, the extent of control exercised by an officer or shareholder is irrelevant to determining his liability under the FDCPA. Because such individuals do not become "debt collectors" simply by working for or owning stock in debt collection companies, we held that the Act does not contemplate personal liability for shareholders or employees of debt collection companies who act on behalf of those companies, except perhaps in limited instances where the corporate veil is pierced. Rather, the FDCPA has utilized the principle of vicarious liability.

The Eastern District of New York, on the other hand, has determined that an employee of a debt collector may be individually liable under the FDCPA based on two grounds:

First, each employee is himself a "debt collector" within the statutory definition, namely, each is a "person" in a business, "the principal purpose of which is the collection of any debts or who regularly collects or attempts to collect . . . debts owed or due . . . another . . . ." Second, Zapata and Soto are each affirmative actors and tortfeasors, who actually made the actionable phone calls, and would be personally liable if this was a tortious cause of action. Thus, the defendants Met Retail, Zapata and Soto are jointly and severally liable for the damages incurred by the plaintiff, if there is liability.

Teng v. Metro. Retail Recovery Inc., 851 F. Supp. 61, 67 (E.D.N.Y. 1994) (ellipses in original).

Decisions within our own Circuit suggest that neither Pettit nor Teng express the rule that controls within this jurisdiction. Shortly after Teng was decided, Judge Jones cited it for the proposition that "employees of debt collectors may be liable under the FDCPA," consequently finding that a plaintiff had stated a claim against two individual employees of a debt-collecting business. Zhang v. Haven-Scott Assocs., Inc., 1996 WL 355344, at *9 & n.12 (E.D. Pa. 1996). In Pollice v. National Tax Funding, L.P., 225 F.3d 379, 405 n.29 (3d Cir. 2000), however, our Court of Appeals noted -- and appeared implicitly to approve -- Pettit's holding before distinguishing it, observing that "we deal with the liability of the general partner where the limited partnership meets the definition of 'debt collector.' We believe that a general partner exercising control over the affairs of such a partnership may be held liable under the FDCPA for the acts of the partnership." Based on this holding, Judge Katz concluded that "individuals who exercise control over the affairs of a business may be held liable under the FDCPA for the business'[s] actions," Piper v. Portnoff Law Assocs., 274 F. Supp. 2d 682, 690 (E.D. Pa. 2003), and that therefore liability may lie against "defendants [who] signed debt collection letters, or authorized others to sign the letters for them, and were involved in [a debt-collecting business's] day to day operations." Id. at 689; see also Albanese v. Portnoff Law Assocs., 301 F. Supp. 2d 389, 400 (same). Judge McVerry has agreed with Albanese that under the FDCPA, "when individuals exercise control over the affairs and overall operations of an entity, individuals can be held liable on the part of an affiliated entity" -- though he rejected the notion "that an active role is enough to establish liability." McNally v. Client Servs., Inc., 2007 WL 4561152, at *4 (W.D. Pa. 2007).

Summarizing this jurisprudence, it appears unlikely that an employee may be held liable as a debt collector under the FDCPA merely for playing an active role in debt collection activities. Teng, and its endorsement in Zhang, thus do not control with respect to mere employees. But, contrary to Pettit, an entity or individual who exercises control over the activities of a debt-collecting business may be liable under the Act. Plaintiffs have alleged that Ciccone is an officer of MLAI, Pls.' Compl. ¶ 5, and it was Ciccone who signed the civil complaint filed in Bucks County against Alexander on MLAI's behalf. Ex. B to Pls.' Compl. If institution of this suit violated the Act --a question we will consider shortly -- then these allegations are sufficient, if proven, to support liability against Ciccone as an individual. This is true even if it was MLAI -- an incorporated entity -- who filed the civil complaint against Alexander. We will thus deny defendants' motion to dismiss the claims against Ciccone.

C. Plaintiffs' Claims Under The FDCPA

Defendants argue that "when one eventually reaches the portion of the Plaintiffs' Complaint relevant to the Defendants, one only finds threadbare assertions and illusory conclusions that are not actionable under the [sic] either FDCPA or any applicable state statute, and even if they were, are not supported by any relevant facts." Defs.' Mem. at 9. Plaintiffs respond that they have stated a claim for violation of the FDCPA on two grounds. First, plaintiffs argue that "Defendants' representations to both Plaintiffs and the Magisterial District Court that Mr. Yentin was liable to Cashcall, Inc. or Defendants in the amount of $2,600.00 violated 15 U.S.C. § 1692e(2)(A)."

Pls.' Resp. at 9. Second, plaintiffs aver that "[i]t has been held that a violation of state law (or even a threat to do so) during a collection process forms the basis ...

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